DEFINITION of 'Form 6781: Gains And Losses From Section 1256 Contracts And Straddles'
A tax form distributed by the Internal Revenue Service (IRS) and used to report gains and losses from straddles or financial contracts. Section 1256 contracts include regulated futures contracts, foreign currency contracts, options, dealer equity options or dealer securities futures contracts. These investments are considered "sold" at year end (even if the positions are not actually closed) for tax purposes, and are assigned their fair market value in order to determine gains and losses. Individual tax filers report gains and losses for contracts according to mark-to-market rules.
For reported investments, 40% of the gain or loss is reported as short-term, with the remaining 60% reported as long-term.
BREAKING DOWN 'Form 6781: Gains And Losses From Section 1256 Contracts And Straddles'
Form 6781 has separate sections for straddles and Section 1256 Contracts, meaning that investors have to identify the specific type of investment used.
Investors trading foreign securities contracts in foreign exchanges must still report gains or losses from that contract on Form 6781, even if those contracts would generally not be treated as a Section 1256 Contract.